TIP vs. MBB: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the iShares MBS ETF (MBB) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and MBB is a iShares Intermediate Government fund. So, what’s the difference between TIP and MBB? And which fund is better?

The expense ratio of TIP is 0.13 percentage points higher than MBB’s (0.19% vs. 0.06%). TIP is mostly comprised of AAA bonds and MBB has a high exposure to AAA bond. Overall, TIP has provided higher returns than MBB over the past ten years.

In this article, we’ll compare TIP vs. MBB. We’ll look at risk metrics and holdings, as well as at their performance and portfolio growth. Moreover, I’ll also discuss TIP’s and MBB’s fund composition, industry exposure, and annual returns and examine how these affect their overall returns.

Summary

TIP MBB
Name iShares TIPS Bond ETF iShares MBS ETF
Category Inflation-Protected Bond Intermediate Government
Issuer iShares iShares
AUM 28.3B 25.69B
Avg. Return 4.07% 3.08%
Div. Yield 1.87% 1.88%
Expense Ratio 0.19% 0.06%

The iShares TIPS Bond ETF (TIP) is a Inflation-Protected Bond fund that is issued by iShares. It currently has 28.3B total assets under management and has yielded an average annual return of 4.07% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.19%.

The iShares MBS ETF (MBB) is a Intermediate Government fund that is issued by iShares. It currently has 25.69B total assets under management and has yielded an average annual return of 3.08% over the past 10 years. The fund has a dividend yield of 1.88% with an expense ratio of 0.06%.

TIP’s dividend yield is 0.01% lower than that of MBB (1.87% vs. 1.88%). Also, TIP yielded on average 1.00% more per year over the past decade (4.07% vs. 3.08%). The expense ratio of TIP is 0.13 percentage points higher than MBB’s (0.19% vs. 0.06%).

Fund Composition

Holdings

TIP - Holdings

TIP Bond Sectors Weight
AAA 99.31%
Others 0.69%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.31%, 0.69%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

MBB - Holdings

MBB Bond Sectors Weight
AAA 99.51%
Others 0.49%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

MBB’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.51%, 0.49%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

Risk Analysis

TIP MBB
Mean Return 0.28 0.2
R-squared 66.57 74.38
Std. Deviation 4.33 2.12
Alpha -0.58 0.14
Beta 1.18 0.6
Sharpe Ratio 0.62 0.87
Treynor Ratio 2.24 3.02

The iShares TIPS Bond ETF (TIP) has a Sharpe Ratio of 0.62 with a R-squared of 66.57 and a Treynor Ratio of 2.24. Its Standard Deviation is 4.33 while TIP’s Beta is 1.18. Furthermore, the fund has a Alpha of -0.58 and a Mean Return of 0.28.

The iShares MBS ETF (MBB) has a Treynor Ratio of 3.02 with a R-squared of 74.38 and a Sharpe Ratio of 0.87. Its Beta is 0.6 while MBB’s Standard Deviation is 2.12. Furthermore, the fund has a Mean Return of 0.2 and a Alpha of 0.14.

TIP’s Mean Return is 0.08 points higher than that of MBB and its R-squared is 7.81 points lower. With a Standard Deviation of 4.33, TIP is slightly more volatile than MBB. The Alpha and Beta of TIP are 0.72 points lower and 0.58 points higher than MBB’s Alpha and Beta.

Performance

Annual Returns

TIP vs. MBB - Annual Returns

Year TIP MBB
2020 10.91% 4.03%
2019 8.28% 6.27%
2018 -1.43% 0.81%
2017 2.92% 2.37%
2016 4.56% 1.28%
2015 -1.59% 1.28%
2014 3.49% 6.16%
2013 -8.65% -1.92%
2012 6.8% 2.23%
2011 13.4% 5.88%
2010 6.1% 5.44%

TIP had its best year in 2011 with an annual return of 13.4%. TIP’s worst year over the past decade yielded -8.65% and occurred in 2013. In most years the iShares TIPS Bond ETF provided moderate returns such as in 2014, 2016, and 2010 where annual returns amounted to 3.49%, 4.56%, and 6.1% respectively.

The year 2019 was the strongest year for MBB, returning 6.27% on an annual basis. The poorest year for MBB in the last ten years was 2013, with a yield of -1.92%. Most years the iShares MBS ETF has given investors modest returns, such as in 2012, 2017, and 2020, when gains were 2.23%, 2.37%, and 4.03% respectively.

Portfolio Growth

TIP vs. MBB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $15,229 4.07%
MBB $10,000 $13,906 3.08%

A $10,000 investment in TIP would have resulted in a final balance of $15,229. This is a profit of $5,229 over 11 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in MBB, the end total would have been $13,906. This equates to a $3,906 profit over 11 years and a compound annual growth rate (CAGR) of 3.08%.

TIP’s CAGR is 1.00 percentage points higher than that of MBB and as a result, would have yielded $1,323 more on a $10,000 investment. Thus, TIP outperformed MBB by 1.00% annually.


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